OPINION: Chesapeake Energy may be one of the biggest shale players yet to seek bankruptcy protection, but the independent's recent Chapter 11 filing is unlikely to be the last in the US shale patch.

The brief Opec+ price war between Saudi Arabia and Russia combined with the coronavirus lockdowns to drive down oil prices earlier this year.

The price collapse served as the wake-up call that the US shale industry needed to finally realise its strategy of aiming for massive production growth every year was on shaky ground.

Shareholders in shale players wanted returns, but have instead witnessed bloated capital spending budgets to fund a drilling drive that transformed the Permian into the world's top shale basin.

Investors are now set for pain as operators ready significant asset write-downs in the second quarter.

Shale companies tried to rein in spending once they realised investor enthusiasm had vanished a couple of years ago. Credit and equity markets dried up and energy stocks were performing poorly.

This year was already earmarked for strict capital discipline before the coronavirus pandemic made that a necessity.

Dividends were slashed and new drilling halted, but the change came too late for some.

The pandemic hurled into the spotlight companies struggling to pay their bills, carrying debt loads that became heavier as oil prices plummeted following the Opec+ price war.

Those with balance sheets weakened by the pandemic have wound up in bankruptcy court to reorganise the debt taken on to continually fund drilling plans for fast-declining shale wells.

Chesapeake, which was overloaded with debt before the pandemic, serves as a prime example of how shale companies have been willing to take on excess debt to fund drilling programmes that their shareholders seemingly no longer want.

The historic bankruptcy serves to remind the industry that explosive production growth at the expense of free cash flow is not a model that will survive for much longer, especially not through a global pandemic and certainly not through the fallout from an oil price war.

(This is an Upstream opinion article.)